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He absolutely should replace it - BEFORE you pay them anything more - and I would NOT allow them to just use a razor knife and slit the bubbles to pop them and roll them out flat if a gluled/self-sadhesive product - those bad sections should be be taken up and redone, and make sure there is a true match in pattern/color, because if he cannot get a true match (because avaliable replacement stock is a different batch lot) then he should replace the entire floor with new material - all at no added cost to you, and in an expeditious manner. You should NOT have to accept a substandard result because he had a problem in installation or with the product.

If it happens to be unglued or only edge glued, then he MAY be able to peel it back up and relay it correctly - but you should be HAPPY with the end result, not having to accept something less than a workmanlike job. And if he blames the material, then it is HIS responsibility to get the manufacturer to replace it and for him to replace it - YOU are not responsible for defective material, if that is the issue.

If your product happens to be an unglued or peel-and-stick vinyl (or linoleum) sheet or jigsaw connected squares and it is bubbling/bulging, then you may have a long fight on your hands, becauase they VERY commonly bulge and bubble - not only right after intallation as they initially stretch and lay out flat, but pretty much for at least a year or two after and sometimes essentially forever - a flawed product design in the first place in my opinion.

The above all assume he proposed materials and you chose a type of material and exact pattern or color - if it happens that YOU specifically said up-front that you wanted a particular product installed (by brandname and product model/ then the argument gets tougher if he installed what YOU (or your architect) specified - then it comes down to whether it is a material problem (hence YOUR problem to get the material issue resolved) or an installation issue (which would be his problem to fix).

Here are a couple of related previous questions about vinyl bubbles FYI: